Sanofi: A Long-Term Winner On These FDA Approvals

Sep.19.12 | About: Sanofi (SNY)

Sanofi (NYSE:SNY) researches, develops, and manufactures pharmaceutical and healthcare products. Sanofi's headquarters is in Paris, France. The company has a market cap of $115 billion, and its stock price is around $44.

On September 12th Sanofi got what some would call great news. It was announced that Sanofi's multiple sclerosis drug Aubagio had been approved by the Food and Drug Administration (FDA). Aubagio is an oral drug medication that slows the progression of multiple sclerosis. Some might consider this to be great news because it will allow Sanofi to enter into the $12 billion market for the treatment of multiple sclerosis. But, since the announcement, Sanofi's stock price has increased by less than 1%. That seems unusual because a drug-maker's stock price would usually rally after an important drug received FDA approval.

I believe the reason that Sanofi's stock did not rally is because Aubagio faces so much competition. For instance, Novartis (NYSE:NVS) has Gilenya which is also an oral treatment that slows the progression of multiple sclerosis. But, while "Aubagio might be preferred over Gilenya given the safety issues Gilenya has had on the efficacy side", it doesn't appear to be that great of a drug. In a clinical trial, Aubagio failed to beat Merck (NYSE:MRK) and Pfizer's (NYSE:PFE) co-marketed injectable multiple sclerosis treatment Rebif. Aubagio also faces the new drug dilemma that results when doctors take a wait and see approach towards prescribing new drugs, when they only have limited advantages over pre-existing drugs.

The good news for Sanofi is that the company could be close to getting FDA approval for another multiple sclerosis treatment named Lemtrada. In August, the FDA asked Sanofi to reformat its Lemtrada application, but that should only cause a minor delay towards getting approval. Lemtrada is arguably the most important drug in Sanofi's pipeline.

Additional Sanofi News

On September 15th it was reported that Sanofi would disclose 1,500 to 2,500 job cuts on September 25th. In July, Sanofi announced that it planned to cut jobs at two French units "to preserve the company's profitability, which has been put at risk by recent patent expirations and the economic recession in most of Europe." At that time of the announcement, the company said that it would give details of the job cuts in September. Sanofi needed to make the cuts because of lost revenues due to patent expirations on Lovenox, Plavix, and Avapro. Plavix, which Sanofi co-marketed with Bristol-Myers Squibb (NYSE:BMY), was the second largest revenue producing medication in the world with 2011 revenues of $6.77 billion.

On September 10th, Sanofi announced that it had developed a vaccine against Dengue Fever. Dengue Fever is a mosquito spread disease that threatens half of the world's population. While the vaccine is the first vaccine for the treatment of Dengue fever it was only 30% effective in its first large clinical trial. The Dengue Fever test results "marked a milestone in the 70-year quest to develop such a vaccine, demonstrating that a safe and effective inoculation against dengue is feasible". This could be a major breakthrough for Sanofi because the "World Health Organization estimates that 50 million to 100 million infections occur each year, mainly in tropical and subtropical countries." It should be noted that in 2009, cases of Dengue Fever were reported in the Florida Keys. Analysts predict that a Dengue Fever vaccine could result in sales of over $1 billion per year.

On September 14th, the FDA reported that Sanofi's Icy Hot and Johnson & Johnson's (NYSE:JNJ) Bengay pain medications, had caused injuries in users ranging from mild to severe chemical burns. The agency gave instructions that consumers should stop using the pain relievers if they "experience signs of skin injury such as pain, swelling or blistering of the skin." This is a setback for Sanofi because the Icy Hot brand (which the company purchased in 2009 from Chattem Inc.) was a big revenue producer.

On August 3rd, the FDA announced that it had approved Sanofi and Regeneron Pharmaceutical's (NASDAQ:REGN) drug Zaltrap. Zaltrap is a treatment for patients with metastatic collateral cancer with tumors that have failed to respond to earlier chemotherapy treatments. The infused medicine which is to be taken in combination with chemotherapy will compete against Roche Holding's (OTCQX:RHHBY) drug Avastin and Bristol Meyers drug Erbitux. Industry analysts expect that Zaltrip will have annual sales of as much as $300 to $400 million. This is well below the Avastin's 2011 sales of $2.66 billion and Erbitux 2011 sales of $703 million.


Sanofi's stock has performed very well over the last year. The stock is currently just off of its 52 week high and has increased in price by 33% over the last 52 weeks. Unfortunately, Sanofi's recent medical breakthroughs, Abuagio and its vaccine for Dengue Fever, are bitter sweet victories. Abuagio has limited marketing potential and the Dengue Fever vaccine had only a 30% effectiveness rate. The loss of revenues as a result of the recent news regarding chemical burns caused by Sanofi's Icy Hot products could also be a setback. Finally, the loss of patent exclusivity for its three largest revenue producing drugs Plavix, Lovenox, and Avapro (which have gone or are about to go off patent) will cost the company more than 12% of its revenues. While Sanofi has a fairly strong drug pipeline, the new drugs are not likely to make up for the revenues lost to patent expirations. I like Sanofi's stock (with its 3.9% dividend yield) as a long-term investment, but would not expect for it to move higher in the near future.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.